Taxing out-of-state trusts

North Carolina’s Department of Revenue (NCDOR) recently claimed the ability to force out-of-state companies to collect sales taxes and set its own rules on how to do that based on a U.S. Supreme Court decision in South Dakota v. Wayfair, Inc. (Wayfair) this past June. Now NCDOR is taking its own case to the Court and wants to use the sales tax decision as a basis for taxing out-of-state trust accounts with beneficiaries in North Carolina.

NCDOR claims the Wayfair decision sets a precedent taxation if just one party of an activity is in the state. Both the state circuit court and state supreme court cited the old Quill case in their decisions against the state, but they also looked to other cases that were specific to trust funds. The state supreme court ruled in June that it is unconstitutional for the state to tax the income of a trust in New York if none of the income was earned or distributed in North Carolina.

This provides one more reason for the General Assembly to clarify when something becomes taxable in North Carolina.